Saturday, March 31, 2007

Payday casn advance lenders will come under tighter regulation by the state later this year under legislation signed into law Friday by Gov. Bill Richardson (pictured).

“This is a big deal, particularly for my home community of Gallup,” said Democratic Rep. Patricia Lundstrom. The community has a heavy concentration of payday lenders.

The instant cash loans are short-term advances of cash against a borrower’s future paycheck or when a lender agrees to hold a borrower’s personal check and cash it later to cover the borrower’s debt.

Critics contend payday lenders target the poor and the short-term, high-interest loans can trap consumers in a web of debt. The new law, which will take effect on Nov. 1, will cap fees, restrict total loans by a consumer and prohibit immediate loan rollovers, in which a consumer takes out a new loan to pay off a previous loan.

A borrower who is unable to repay a bad credit payday loan will automatically be offered a 130-day payment plan, with no fees or interest. Once a loan is repaid, under the new law, the borrower must wait 10 days before obtaining another payday loan.

The law will allow the term of a loan to run from 14 to 35 days, with the fees capped at $15.50 for each $100 borrowed. There also will be a 50-cent administrative fee to cover costs of lenders verifying whether a borrower qualifies for the loan, such as determining whether the consumer is still paying off a previous loan.

A borrower’s cumulative payday loans could not exceed 25 percent of the individual’s gross monthly income. Richardson said the regulatory measures were a “good solid compromise” between consumer protection interests and the cash advance online lending industry.

“But we have done the right thing to protect consumers, including our most vulnerable citizens, who have gone unprotected for too long,” the governor said.

Lt. Gov. Diane Denish said the legislation was a “hard-fought battle” and described it as among the most important measures approved during the Legislature’s 60-day session, which ended two weeks ago.

Providers of no faxing payday loans will be required to provide consumers with loan information in Spanish or English. State regulators also can direct lenders to prepare loan brochures in another language.

The new law also will require the state Financial Institutions Division, which is part of the Regulation and Licensing Department, to submit a yearly report to the Legislature on payday lending activities in the state, including the number and amount of loans made during the previous year as well as net write-offs.

William Verant, director of the Financial Institutions Division, said the effective annual percentage rate of interest will be 35.4 percent for a quick payday advance borrower whose goes through the free repayment period on a payday loan under the new law. It would be 40.6 percent, he said, for a typical 14-day loan.

When the legislation was considered in the Legislature, critics warned that the regulatory restrictions could force some of the nearly 300 payday lenders out of business.

Richardson acknowledged that some lenders might close their doors but said “I believe those that will stay in business are more responsible.”

This entry was posted on Saturday, March 31st, 2007 at 11:59 am and is filed under New Mexico.